Fuel Standard (Petrol) Determination 2001 and the Fuel Standard (Automotive Diesel) Determination 2001

Regulation Impact Statement
Environment Australia, 2001

6. Comparative Assessment of Impacts of Options

The investment required by refineries to meet the standards specified under Option 1 would be greater than that required for the standards under Option 2, however, the difference in the environmental gains from both options does not justify the adverse economic impact on industry from the tighter standards proposed under Option 1. It is important that any adverse impact of fuel standards on the refining industry is balanced with significant environmental benefits from mandating tighter fuel standards.

There are eight refineries in Australia and all but one (the BP refinery at Bulwer Island in Queensland) require significant investment to meet the standards proposed under both options. As they all have different configurations the standards affect them in different ways, however the most substantial investment required relates to reductions in sulfur and benzene.

The Fuel Quality Review looked at the impacts of introducing fuel quality standards on the refining industry, vehicle emissions and consumers. An assessment of the overall benefits of harmonising with international fuel standards was also provided in the report from the Review.

The impacts on importers relate specifically to the proposals for olefin levels in petrol and the banning of MTBE as an octane enhancer. The normal supply of imported gasoline is from the Asia-Pacific region and the Middle East. However, in the past supplies have also been sourced from Europe. The extra freight costs for supplies of gasoline from Europe are offset when prices are lower in Europe compared to Singapore. The proposed standards under both options present challenges for importers to source fuel to meet the standards and remain economically viable. Fuel that meets the standards is more readily available from Europe than Asia.

Surplus gasoline from Asian refineries, while low in aromatics, is high in olefins. While Asian refineries are moving to introduce hydrotreating equipment to lower olefins, it is highly unlikely that there will be a sufficient supply with lower olefin content until 2005. These refineries also use MTBE to achieve required octane levels. Importers will, therefore, need to source fuel to meet the Australian specifications from Europe at a high cost for cargo and freight. For example, sourcing a 30 000 megaton cargo of 92 RON from Europe would cost $37.89 BBL compared with $34.21 BBL from Asia. Similar high freight costs would also apply to cargoes from the US although imports of fuel to Australia are not currently sourced from the US.

The impacts on vehicle manufacturers relate mainly to those parameters that are technology enabling and influence the efficient operation of new emissions control technology or have the potential to adversely affect the operation of engines generally. Vehicle manufacturers, therefore, strongly supported any standards that directly aligned fuel quality with Euro standards.

6.1 The Fuel Quality Review

The Commonwealth commenced the process of developing fuel quality standards in 1998 and commissioned a review of fuel quality requirements for Australian transport (undertaken by Coffey Geosciences Pty Ltd).

The findings of the Fuel Quality Review provided a valuable set of information on the impacts of changes to fuel quality to assist in the development of appropriate national fuel quality standards for Australia.

The Review modelled the air quality and greenhouse gas emission reductions as well as Australian refinery implementation costs for a range of different fuel standards based on variations of the Euro 3 and 4 fuel specifications. Six scenarios (Table 2) were modelled under the FQR, all of which, other than the 'business as usual' case (scenario 1), included the MBE commitments in relation to emissions standards and fuel quality. A summary of the key features of the FQR scenarios is presented in Table 2 below. More detailed descriptions can be found in Discussion Paper 1, which is a summary of the report of the Review.

Scenario 4 under the Fuel Quality Review best corresponds to Option 1, the preliminary Commonwealth position. Option 2, the revised Commonwealth position, sets less stringent standards than Scenario 4 but more stringent than Scenario 3.

Table 2: Outline of the six scenarios modelled in the FQR

Scenario Description 2002 2005 2006 2008
1 Base case Business as usual: 2 c/L PULP/ULP differential from 2002; LP out in 2002; RVP reduced as per State agreements.
Sulfur levels in on road diesel: 500ppm urban / 2000 ppm country in WA from 1/1/00; 500 ppm urban in Brisbane from 1/7/00, country Qld 2000. Other members: 1000 ppm av urban / 2000 ppm av country with +500ppm limits, from 1/1/00.Off road diesel sulfur levels: no change from present position.
2 MVEC/MBE (Explicit) Option Gasoline: 500 ppm sulfur (S)
On road diesel: best endeavours to achieve metro diesel 500 ppm ahead of 1/12/02; 500 ppm for all on road from 1/12/02.
Off road diesel; no change
Gasoline: 150 ppm S
95 RON for all new vehicles.
On road diesel: excise reductions on 50 ppm S: 1 c/L in 2003; 2 c/L in 2004/5
Off road diesel; no change from present
On road diesel:
50 ppm S
Off road diesel: 50 ppm S
 
3 Best Endeavours MVEC/MBE (Implicit) Option Gasoline - 500 ppm sulfur
On road diesel - 500 ppm sulfur
Off road diesel; no change from present
As for Scenario 2 but also:
Gasoline: Euro 3 with specific requirements for RVP, benzene, S, aromatics and olefins. Specifications for parameters other than S based on refinery best endeavours.
95 RON for all new vehicles
On road diesel with specific requirement for 50 ppm sulfur. Specifications for parameters other than S based on best cost/benefit breakpoints for each refinery. Off road diesel: 50 ppm S. Euro 4 petrol specifications other than sulfur based on best cost/benefit breakpoint for each refinery.
4 Mandatory MVEC/MBE (Implicit) Option As for Scenario 3 As for Scenario 3 but set specifications for all parameters to be mandatory As for Scenario 3 but set specifications for all parameters to be mandatory Euro 4 petrol specifications mandated.
5 Euro 4 Transport Fuels by 2005 As for Scenario 3 As for Scenario 3 As for Scenario 3 but also:
Gasoline: Euro 4
98 RON for all new vehicles
6 Most stringent As for Scenario 3 Gasoline: Euro 4 complete
RVP=60 kPa
All diesel: Euro 4 complete
  98 RON for all new vehicles.
Gasoline: 30 ppm S
All diesel: 30 ppm S

Note: The 'best endeavours' specifications represent limits which would apply to each batch of fuel (see Coffey Geosciences Pty Ltd, 2000, FQR, pp. 7-16, 7-17.). Scenario 4 was based on mandatory compliance with the Euro fuel specifications for all parameters.

6.1.1 Air pollutants

The Review found that there would be substantial improvements in urban air quality following harmonisation with European emissions and fuel standards (Euro 3 and then Euro 4) over time. For some pollutants, reductions of up to 50% in emissions were predicted over a 20 year period. The Review found that the main emissions benefits from improving fuel quality would arise from enabling the use of improved motor vehicle emission control and engine technology. It did note, however, that emissions of some pollutants vary in proportion to the amount of the pollutant in the fuel, and as a result, fuel quality has a more direct effect on emissions of these substances.

Modelling results showed differences in emissions reductions over time for many air pollutants from the vehicle fleet between scenario 1 (business as usual), scenario 2 (requiring only specified MBE standards for petrol and diesel) and the remaining scenarios 3-6 (based on increasing compliance with the full range of Euro fuel specifications).

These findings strongly support the need to improve the management of the range of fuel parameters addressed by the Euro environmental fuel specifications (which are modelled in various forms in scenarios 3-6), and not just the key technology enabling parameters of sulfur in diesel and sulfur and RON in petrol (which are modelled in scenario 2).

The projected air quality gains for the main air pollutants (hydrocarbons, carbon monoxide, nitrous oxides and particles) from scenarios 3 to 6 are largely of the same magnitude (although there are variations) when data from all Australian capital cities is considered together. There are, however, more pronounced differences in the magnitude of emissions reductions for different pollutants between scenarios 3 and 4 at the individual city level.

Table 3 gives the estimated reduction in emissions over time for the major pollutants of concern under Scenario 4 modelled in the Fuel Quality Review.

Table 3: Reductions in emissions under Scenario 4

Pollutant Emissions Reduction % 2000 - 2010 Emissions Reduction % 2000 - 2020
Hydrocarbons 20 - 25 29
Oxides of Nitrogen 34 69
Particulate Matter (PM10) 25 33
Benzene 51 72
Carbon Monoxide 45 - 51 66

6.1.2 Greenhouse gases

The Review assessed changes to transport sourced greenhouse emissions and changes to greenhouse emissions from more intensive refining operations. It found, in the case of emissions from road transport, a 27% increase in emissions under business as usual (scenario 1) for the period 2000 to 2010, reducing to 20% over the same period for the other scenarios (scenarios 2-6). It noted that the 7% improvement was due to the assumption that the National Average Fuel Consumption (NAFC) target of 15% improvement over business as usual would be achieved.

The Review concluded that changes to fuel quality will have little direct impact on greenhouse emissions from the transport fleet, but rather that the main impact will be an indirect one from enabling vehicle technology improvements.

In the case of emissions changes from refinery operations, an assessment of incremental refinery emissions suggested significant greenhouse emissions associated with the production of improved fuel quality. Increased energy consumption will result from direct fuel burning in process furnaces, carbon rejection to make hydrogen and by remote electricity generation. The Fuel Quality Review estimated that total greenhouse gas emissions from the eight refineries will increase by 2.1 million tonne pa CO2 equivalent.

Although fuel quality has little impact on greenhouse emissions from the transport fleet and greenhouse gas emissions at the refinery are projected to increase with the production of cleaner fuels, overall greenhouse gas emissions are predicted to fall. Tighter fuel standards will facilitate advanced vehicle technology that will allow for improved fuel economy resulting in fewer emissions of greenhouse gases from the tailpipe.

6.1.3 Costs

The Review estimated that costs to the refining industry of full harmonisation with Euro 4 fuel standards would be:

  • $1320m in capital investment over the period to 2008 ($185M on average per refinery); and
  • $136m pa in operating costs, an average of $17M pa per refinery from 2005.

Allowing a capital charge at 20% per annum, the average extra capital plus operating costs for local refining of Euro 4 fuels would be 1.5 cents per litre for Euro 4 diesel and 1.1 cents per litre for Euro 4 petrol. Under Option 1, the preliminary Commonwealth proposal, Euro 4 diesel would be produced from 2005/6 and full specification Euro 4 petrol would be produced, at the earliest, from 2008.

It is probable that these increased costs of production would be passed on to consumers as increased fuel prices. It is expected that any fuel price changes would be experienced in the 2005 to 2008 period, given the proposed tighter sulfur specifications from 2005.

Economic analysis conducted as part of the Fuel Quality Review, using a General Equilibrium Model, estimated that a 1% increase in fuel prices would cause minor economic impacts such as an increase in the Consumer Price Index (less than 0.02%) and a fall in real wages (0.08%). It should be noted that this level of price increase currently occurs under fluctuating fuel prices caused by changes in the cost of crude oil.

Under Option 2, Euro 4 fuels are not specified, with the exception of Euro 4 sulfur levels for diesel in 2006. The overall cost of implementing Option 2 would, therefore, be lower and the impact on fuel prices smaller as indicated in Table 4 below.

Table 4 summarises the estimated average cost implications of the proposed fuel quality scenarios on the refining industry. The table is taken from Section 7.7 of Volume 2 of the Report from the Review of Fuel Quality Requirements for Australian Transport, March 2000.

Table 4: Summary of Average Fuel Cost Increases (Compared with Scenario 1)

Scenario Increase in operating costs per refinery Increase in capital cost per refinery (2008 cf. base) Increase in petrol production cost by(cents per litre) Increase in diesel price (cents per litre)
2008 2020
1 0 0 0 0 0
2 $7M pa $85M 0.5 0.8 1.5
3 $7M pa $167M 0.9 1.2 1.5
4 $17M pa $185M 1.1 2.1 1.5
5 $79M pa $260M 1.4 5.3 1.5
6 $79M pa $260M 1.4 5.3 1.6 to 1.7

Notes:

  1. The above cents per litre sums are the oil refining company's incremental production costs (not prices). The actual price increases at the bowser may be impacted by imports of overseas surplus petrol and diesel.
  2. Scenario-5 costs are virtually the same as Scenario-6 costs, since both have the same tighter specifications on olefins and the introduction of 98 RON PULP. They differ only marginally in timing, and the reduction of sulfur in petrol from 50 to 30 ppm.
  3. For Scenarios 5 and 6, (relative to Scenario-4), the average increase in capital and operating costs are:
    a) for olefins, about $25 M for capital costs and $3M pa for operating costs, resulting in a cost increase of 0.3 c/L from 2008, plus
    b) for 98 RON PULP, about $50M for capital costs and $60M pa increased operating costs, resulting in a further cost increase of 2.9 c/L by 2020;
    Therefore, the total increased cost for Scenario 6 in 2020 is approximately 5.3 c/L.
  4. Due to the range of viable operating and plant change options available, and also due to the multiple interactions and synergies between nearly all refinery plant investments, it is impossible to precisely identify, isolate and quantify costs pertaining to just one particular fuel quality change (eg. aromatics or olefins). The numbers in the table above are estimates only.
  5. Costs are relative to Scenario 1. The cost of Scenario 1 was taken as zero, as the refinery models were developed on the basis that operations and projects required for 'business as usual' are already in place.

6.1.4 Benefits

The Review did not assess the benefits of Commonwealth regulation to implement national fuel quality standards which flow from avoided health costs occasioned by improvements in urban air quality resulting from reduced pollutant emissions. Although difficult to quantify, the flow on benefits would include reduced greenhouse gas emissions over the longer term.

The Environmental Economics Unit of Environment Australia estimated that from 2000 to 2019, avoided health costs will amount to greater than $3,410M. Details of this assessment were provided in the RIS for the Fuel Quality Standards Bill 2000. Other benefits not assessed could include investment opportunities, visual amenity, export potential, or avoided infrastructure damage. The inclusion of estimates for these effects would increase the overall benefits.

Harmonisation with international fuel standards would also result in commercial benefits for vehicle manufacturers as it would facilitate the introduction of new technology and, therefore, market opportunities that would not be available without the cleaner fuels.

It is difficult to quantify the relative costs/benefits of both options against each parameter for which standards have been proposed. The modelling under the Fuel Quality Review has provided the most reliable source of information on the impacts of tighter fuel standards. The limited amount of information available to the Commonwealth on the cost of changing some specifications was provided on a 'commercial-in-confidence' basis and, therefore could not be released publicly.

6.2 Proposed Standards for Petrol and Diesel Parameters

This section provides a comparison of the impacts of the proposed standards under each option for those petrol and diesel parameters that have been identified as having a significant influence on vehicle emissions. As outlined above, the issues of most concern to the majority of stakeholders were the proposals for sulfur in diesel and benzene in petrol. Importers had specific concerns about the proposals for MTBE (methyl tertiary-butyl ether) and olefins in petrol.

6.2.1 Petrol

Sulfur

Euro 2, 3 and 4 Option 1 Option 2
1993: 500 ppm (Euro 2)
2000: 150 ppm (Euro 3)
2005: 50 ppm (Euro 4)
All grades:
1 Jan 2002: 150 ppm
1 Jan 2005/6: 50 ppm
1 Jan 2008: 30 ppm
ULP: 1 Jan 2002: 500 ppm
PULP: 1 Jan 2002: 150 ppm
LRP: 1 Jan 2002: 500 ppm
All Grades:1 Jan 2005: 150 ppm

Sulfur is a key parameter in facilitating the introduction of improved vehicle emissions control technology. Reduction in sulfur levels is also the most costly investment for the refining industry.

2002: The proposal for 2002 harmonises the standard for unleaded petrol (ULP) with Euro 2. The 150 ppm sulfur standard for premium unleaded petrol (PULP) is recommended to harmonise with Euro 3 in order to facilitate the early introduction of Euro 3 vehicles. Euro 3 technology vehicles are already being imported from Europe and Japan.

Feedback from the refining industry indicated that it would be technically impossible to produce 150 ppm for all grades in 2002 as was recommended in Option 1. However vehicle manufacturers advised that 500 ppm sulfur in PULP would have adverse implications for the new emissions control technology in Euro 3 vehicles. The revised position (Option 2) provides a compromise to ensure supply and at the same time accommodate Euro 3 vehicles.

2005: The proposal for 2005 Under Option 2 harmonises the standard for both ULP and PULP with Euro 3. This will support the introduction of Euro 3 petrol vehicles in Australia in 2005 as mandated under the ADRs.

Feedback from the refining industry on Option 1 indicated that 6 to 12 months would be required after the production of 50 ppm diesel before production of 50 ppm petrol could commence. For most refineries the cost effective route to achieve 50 ppm sulfur petrol is to utilise the existing diesel desulfurisation plant, once it is replaced by new plant to produce 50 ppm sulfur in diesel. Therefore, the Commonwealth's revised position (published in September 2000) proposed to introduce 50 ppm diesel in 2006 followed by 50 ppm petrol in 2007. However, fuel companies argued that, as Euro 4 emissions standards have not yet been set, it would be premature to set a Euro 4 standard for petrol at this stage in light of the significant investment that would be required by refineries. Option 2, therefore, does not propose any sulfur standard after 2005.

The refining industry strongly opposes advancing the introduction of Euro 3 and 4 specifications which they felt was not justified. Vehicle manufacturers, however, argue for lower sulfur levels to slow the deterioration of catalytic converters in all post 1 January 1986 vehicles. The proposals under Option 2 aim to provide a compromise in moving towards lowering sulfur levels in all grades of petrol to ensure the efficient operation of new emissions control technology resulting in reduced emissions to the environment and improved air quality.

If Australia is to harmonise with Euro standards, overseas trends toward sulfur reduction should be noted. There is a general move internationally to reduce sulfur levels to 30 ppm and below and it will be important to revisit this issue on a regular basis to determine sulfur levels required after 2007. This trend is also evident in the Asia-Pacific region although the move to introduce standards for cleaner fuels is much slower than in Europe and the US. In setting national standards for ultra low sulfur diesel, the Commonwealth will need to ensure that any proposed standards do not result in competition and trade barriers, particularly for imported fuel.

Lead Replacement Petrol (LRP)

In developing Option 2, the Commonwealth looked at the issue of sulfur levels required for LRP and stakeholders were asked to comment on whether sulfur levels should be mandated at 500 ppm (Euro 2) or 150 ppm (Euro 3).

The general feeling among stakeholders is that LRP is only a short-term option and that sulfur levels, are therefore not a critical issue. The Australian Institute of Petroleum (AIP) submitted that LRP is only an interim product in the market and is not designed for long-term supply and any efforts by refineries to reduce sulfur levels should be spent on the more important 'long-term petrol products' ie ULP and PULP.

The AIP is concerned that a tight sulfur specification for LRP could unduly constrain and distract refineries from meeting the more important sulfur specifications for unleaded petrol. AIP companies have, therefore, urged that the sulfur specification for LRP be set at a maximum of 500 ppm. This is not a critical issue for vehicle manufacturers as the impact relates only to older vehicle technology.

As sulfur in LRP is not a critical technology enabling issue, the proposal for fuel quality standards under Option 2 recommends that sulfur levels be mandated at 500 ppm from 1 January 2002.

Research Octane Number (RON)

Euro 2, 3 and 4 Option Option 2
1993: 95 RON (min) (Euro 2, 3 and 4) 1 Jan 2002: ULP - 91 RON (min)
PULP - 95 RON (min)
As for Option 1

The Commonwealth's initial proposals for RON levels were not disputed. It is recognised by all stakeholders that a minimum of 91 RON will be required for ULP and 95 RON for PULP as these levels are critical technology enabling requirements.

The only issues for refineries in supplying the higher octane petrol are the specifications for the octane enhancing components such as benzene, aromatics and olefins. As there will be a requirement to reduce the levels of these components and still meet the octane requirements, some flexibility has been provided for refineries with the use of a pool averaging approach to meet the standards for some parameters.

Concerns have been raised by vehicle manufacturers in relation to the proposal for two grades of petrol ie ULP and PULP and the effects this might have on achieving national average fuel consumption (NAFC) targets. In particular, the possible misfuelling of cars designed to use 95 RON fuel where the price differential favours 91 RON and the implications for warranties were raised. The Federal Chamber of Automotive Industries (FCAI) has stressed that this price differential would result in a competitive disadvantage for those manufacturers who supply Euro 3 vehicles requiring the more expensive fuel.

The FCAI, however, recognises the implications for the refining industry of a rapid market transition to 95 RON that would occur under an equal pricing scenario and the limitations of the refining industry to supply the higher octane 95 RON fuel. The Australian Greenhouse Office is investigating options for addressing this issue to ensure that NAFC targets are not jeopardised.

Motor Octane Number (MON)

Euro 2, 3 and 4 Option 1 Option 2
1993: 85 MON (min) (Euro 2, 3 and 4) 1 Jan 2002 ULP 81 (min)
PULP 85 (min).
No standard proposed.

The FCAI argues that both RON and MON are specified to assure correct functioning of the engine under different operating conditions. MON indicates the probability of knock under high temperature, low load (part-throttle) conditions (ie cruise). The difference between RON and MON values is known as the sensitivity. The World Wide Fuel Charter which represents vehicle manufacturers, recommends that the sensitivity should be limited to a maximum 10 point difference. Option 1 therefore recommended a MON of 81 for ULP and 85 for PULP.

Although the World Wide Fuel Charter recommends a standard for MON, feedback from the refining industry has indicated that MON is an outdated parameter due to changes in vehicle technology. Increasing MON levels also incurs an octane penalty in that RON points are lost for every MON point achieved.

The FCAI submitted that not specifying a MON value is a world unique requirement with potentially serious consequences for engine operability and durability. Documentation supplied by the FCAI to support the mandating of a MON standard did not substantiate a case to the Commonwealth's satisfaction that a MON standard would achieve significant environmental benefits. Option 2, therefore, does not specify a MON standard. However, due to the concern raised about the potential adverse impacts on engine operability of not setting a MON standard, it is proposed that this issue be given further consideration under the process for developing 'operability' standards for petrol and diesel.

These 'operability' standards will address those petrol and diesel parameters that do not have a direct influence on emissions but if not controlled can adversely impact on the efficient operation of the engine. It is proposed that these standards will come into force from 1 January 2002 (at the same time as the first set of 'environmental' standards). A discussion paper on 'operability' standards will be released for public consultation in August 2001.

Octane enhancers

Table 5: Proposed standards for octane enhancers

Ethanol Decision on standard deferred pending further studies
MTBE (Methyl tertiary-butyl ether) 1% by volume (max) All grades 1 Jan 2004
DIPE (Di-isopropropyl ether) 1% by volume (max) All grades 1 Jan 2002
TBA (Tertiary butyl alcohol) 0.5% by volume (max) All grades 1 Jan 2002

As outlined in Discussion Paper 2 on the proposed standards for petrol and diesel fuel parameters, a key component of the Commonwealth's move to harmonise Australian fuel quality requirements with Euro standards is the expanded supply of high octane (95 RON) petrol, known as PULP (premium unleaded petrol).

Measures for a Better Environment recognised the requirement for high octane petrol to facilitate the uptake of direct injection engines. These engines are critical to meeting fuel efficiency and greenhouse targets. The increasing demand for high octane fuel is, however, coupled with the fact that other octane enhancing properties of petrol (such as benzene, aromatic and olefin content) will be reduced or capped under the fuel quality standards. Producers may consider it expedient to use additives in petrol to increase octane ratings, rather than refining processes.

In November 2000, the Commonwealth released a discussion paper to facilitate public consultation on issues of concern relating to octane enhancers. The proposals in the discussion paper were developed after consideration of the findings of two reviews of octane enhancers undertaken by the Royal Melbourne Institute of Technology (RMIT) in 1994 and Duncan Seddon and Associates Pty Ltd in 2000.

Most of the octane enhancers will be managed under the process for assessing fuel additives. However, the proposed standards for petrol and diesel address a number of these additives which are listed in Table 5.

Ethanol:

The preliminary proposal to manage the use of ethanol in petrol by setting a maximum content limit of 10% v/v (provided that all other fuel specifications, including RVP, are met) was primarily based on vehicle operability concerns. Ethanol concentrations in petrol greater than 10% v/v require dedicated engine tuning, and material compatibility issues need to be addressed (Apace Research Ltd, 1998).

The momentum for using ethanol in petrol has been helped by the fact that it can be produced from a wide variety of agricultural sources. However, it can also be produced by petrochemical processes. Its current excise free status does not take into consideration its source. Ethanol can be considered a renewable fuel when produced from renewable sources and there is a potential for greenhouse gas emissions abatement. Whether this potential is realised however, depends on the production process, especially the nature of energy inputs used in distillation and other phases.

Ethanol blended petrol can also result in reductions of certain vehicle emissions, including carbon monoxide and hydrocarbons. However, it is noted that vehicle emission profiles vary markedly between different ethanol petrol blends, and the results from several studies that have been conducted throughout the world on exhaust emissions from ethanol blended fuels are often contradictory.

The Australian Biofuels Association (ABA) was the only stakeholder to object to the preliminary position, arguing that there is no basis for imposing artificial limits on ethanol/petrol blends in Australia in terms of drivability and environmental issues. The ABA claimed that the Australian Intensive Field Trial of Ethanol/Petrol Blend in Vehicles (Apace Research Ltd, 1998) included a complete assessment of the use of ethanol in petrol. However, this study only considered E10 blends, and noted that vehicle operability issues need to be addressed for petrol with increased ethanol content such as 22-25% v/v which is used in Brazil).

As available information on the impact of ethanol in petrol at blends higher than 10% is limited, it has been decided to delay introducing an ethanol standard pending further studies.

Due to the potential greenhouse benefits associated with the use of ethanol-petrol blends, the use of fuel blends with higher ethanol concentrations will be given further consideration in the proposed future development of biofuel standards. The ABA advises that the likely introduction into Australia of Flexible Fuels Vehicles, which are becoming increasingly common in the USA and can automatically adjust to the use of 85% ethanol petrol blends (E85), will create a demand for petrol with a higher ethanol content.

MTBE:

MTBE is widely used by refineries overseas as an oxygenate and octane enhancer due to its compatible blending properties and lower cost. However, its use in the USA (at concentrations around 11% in reformulated gasoline) has resulted in MTBE being detected in ground water in several states (eg California and Maine), with the primary source of contamination from leaks or illegal drainage from underground petrol storage tanks and distribution pipes. Surface water has also been contaminated through the use of older recreational watercraft on lakes and waterways.

MTBE is known to be soluble in water and highly mobile in ground water. It is very slow to biodegrade, with a half-life in ground water between 112 to 720 days.

While the majority of MTBE water contamination cases in the USA were at levels below those causing public health concern, MTBE can be detected by taste and odour (due to its characteristic kerosene/turpentine odour) at extremely low levels, typically in the range from 5 to 15 ug/L. Based on these concerns, ten states in the USA have so far banned or are phasing out MTBE in the 2002 to 2004 time frame: Arizona, California, Colorado, Connecticut, Iowa, Michigan, Minnesota, Nebraska, New York and South Dakota. In Europe, Denmark has also recently proposed to prohibit MTBE.

These concerns have also been repeated in Australia, with MTBE already effectively prohibited in petrol supplied in Western Australia, Queensland and South Australia through setting maximum content limits of 0.1% v/v, 0.5% v/v and 1% v/v, respectively.

All but four submissions supported the Commonwealth's preliminary proposal to prohibit MTBE in Australian petrol. Submissions supporting the preliminary position included those from the States and Territories, the Water Services Association of Australia, the AIP and all domestic refiners.

In Europe, MTBE is currently commonly used at concentrations around 1.6%, and apart from Denmark which extracts a large proportion of its drinking water from underground resources, there appear to be no plans to prohibit MTBE under the new Euro fuel standards. However, a number of Member States have or are currently tightening anti-leaking measures and improving petrol storage standards. A recent European Commission Risk Assessment concluded that there is a concern for groundwater and drinking water pollution, and that risk reduction measures will be necessary. No conclusive views on the extent of the problem in the EU have been reported, which is mainly attributed to the lack of monitoring data.

The literature review and analysis stated that MTBE ground water contamination is a result of leaking petrol storage and distribution systems. It is argued that if the infrastructure was improved (as in the European situation), the risk of MTBE water contamination could be reduced. However, considerable investment would be required to double skin underground petrol storage tanks and distribution systems. In addition, Danish authorities are not convinced that well constructed and operated tanks will prevent contamination, and are still seeking to prohibit MTBE.

Nonetheless, infrastructure improvements do not address the risk of MTBE released to surface waters through spillage during tank filling and accidents, and from 2-stroke marine craft (a significant source of surface water contamination in the USA). Western Australia considered surface water contamination a significant risk when it introduced its regulation to prohibit MTBE.

Concerns about the preliminary position to prohibit MTBE were expressed by a petrol importer (see below), a methanol industry stakeholder (methanol is used in the production of MTBE) and the German Federal Environment Agency.

Concerns of Fuel Importers

The submissions received from Trafigura Fuels Australia and Vopak Terminals Australia identified concerns with the proposal to prohibit MTBE, claiming that they would be unable to import MTBE-free petrol economically and on a continuous basis, with only a small number of overseas refineries producing 1% maximum MTBE ULP and PULP. It is claimed that the majority of refineries in the region will also need to increase the use of MTBE to meet expected future increases in minimum octane requirements. The importer claims that Southeast Asian MTBE residuals are at 2-3% as MTBE there is not managed separately from petrol pools.

Imports currently contribute approximately 7% of the total fuel supplied to the Australian market. During 2000, the total volume of petrol sold in Australia was 18,178 megalitres. Of this amount, 1,163 megalitres was supplied by independent importers. While this appears to be a relatively small proportion, 25% of service stations in Australia are not bound by contracts to any of the four oil majors and can at any time source fuel from independent importers. This is significant when prices for imported fuel are cheaper than the price of domestically produced product and tends to act as a control on domestic refiners increasing fuel prices.

Trafigura Fuels Australia has advised that the current availability of PULP with a 1% maximum concentration of MTBE is limited to production from refineries in Thailand, Japan and Saudi Arabia, with refining/blending operations in Singapore. However, it is noted that this gasoline will not meet the proposed specifications for olefins and sulfur content. Trafigura also point to the fact that the Euro 3 and 4 fuel quality standards will allow MTBE and claim that the current proposal to prohibit MTBE will result in petrol with higher vapour pressure (RVP) and benzene concentrations.

An independent consultant commissioned by Environment Australia generally confirmed the importer's concerns, noting that there has been no petrol imported by independent importers into Queensland or Western Australia since these States prohibited MTBE. The consultant stated that a 0.1% v/v MTBE specification would not readily be guaranteed by any refiner who regularly used MTBE in its systems.

The Commonwealth is aware that at least one domestic refiner has imported petrol into Western Australia that met its specification for 0.1% v/v MTBE. Another domestic refiner has also advised the Commonwealth that it can easily source 1% v/v MTBE petrol through the open market (on contract as opposed to spot market purchasing) in Singapore at approximately a 1 cent per litre premium.

To cater for the concerns of independent importers, the consultant recommended that if a maximum MTBE specification was set, a 1% v/v maximum limit will cater for contamination of petrol by residual amounts remaining in fuel storage facilities and/or distribution systems at refineries regularly using MTBE. This specification would ensure that independent imports into Australia remained feasible and that continuous supplies of imported fuel from independent sources can be maintained.

Trafigura Fuels Australia also argued that the development of national fuel standards should not impede competition, either between Australian refiners or with imported refined product (see the guiding principals in Section 4 Options above). However, the guiding principles also allow for fuel standards that directly address environmental or health issues to be determined on the basis of Australian-specific requirements.

Based on the information at hand, specifically MTBE's potential to contaminate surface and ground water supplies, the revised position is still to effectively prohibit MTBE in all grades of petrol. However, to cater for petrol imports, the MTBE residual limit will be set at 1% v/v. The standard will, however, not come into effect until 1 January 2004 to allow importers additional time to finalise current contracts and renegotiate petrol supplies to meet the standards.

DIPE:

There is significantly less information available on the other ethers used as octane enhancers. However, it is likely that these additives will have similar properties to MTBE, ie highly soluble, be poorly adsorbed by soil and have low biodegradation rates. They are also likely to have the characteristic kerosene/turpentine odour, with taste and odour detection thresholds at extremely low levels.

It was, therefore, originally proposed to mandate standards for DIPE (Di-isopropropyl ether), ETBE (Ethyl tertiary butyl ether), TAME (Tertiary amyl methyl ether) and ETAE (Ethyl tertiary amyl ether). The standards proposed for these ethers would effectively ban their use and allow for residual levels only.

The preliminary proposal to prohibit these additives in all grades of petrol was supported in all but one submission. Trafigura Fuels Australia, a petrol importer, claims that there is no conclusive evidence that these substances should be banned and notes that they are all permitted for use in Europe and the USA.

Advice was received late in the process for finalising the standards that ETBE, TAME and ETAE are not currently listed on the Australian Inventory of Chemical Substances (AICS). Subsequently, until these chemicals are notified and assessed by the National Industrial Chemicals Notification and Assessment Scheme (NICNAS), they are not permitted to be used in Australia. This includes their use in domestically produced and imported petrol blends. Any level mandated under the Fuel Quality Standards Act 2000 would be inconsistent with the Industrial Chemicals (Notification and Assessment) Act 1989.

As DIPE is the only one of these ethers that can be mandated under the fuel quality standards, Option 2 proposes to effectively prohibit its use in all grades of petrol. However, to cater for petrol imports from overseas refineries that normally use ethers in fuel production, the residual limit for DIPE will be set at 1% v/v.

TBA:

The Commonwealth's preliminary proposal to not regulate TBA was based on an assessment that, due to its limited availability, the potential for groundwater contamination was small. However, there were several submissions expressing concern about this position, mainly due to its potential to contaminate groundwater.

TBA has similar physical properties to MTBE, in that it is miscible with water and difficult to biodegrade. However, its use worldwide is much more limited, mainly confined to the USA and Europe. There is little data available on TBA. The FCAI submitted that the effects of TBA on vehicle fuel system materials are unknown, and that any plan to introduce this additive would require further study.

The AIP supported the preliminary position not to manage TBA, but two members (BP and Mobil) believe that TBA should be prohibited due to groundwater contamination issues. BP further submitted that if TBA is not prohibited, its concentration should at least be regulated. Caltex noted that the proposed maximum oxygen specification (2.7% max from 1 January 2002) will in practice limit the quantity of TBA that could be used in petrol.

The revised position to prohibit TBA in all grades of Australian petrol addresses its potential to contaminate groundwater and the concerns expressed by the FCAI. A maximum content level in petrol of 0.5% v/v will be set for TBA to cater for contamination of petrol by residual amounts remaining in fuel storage facilities and/or distribution systems.

The Commonwealth will give further consideration to allowing TBA by managing its use should an application for an approval to vary the petrol standard be made under the Fuel Quality Standards Act 2000.

Reid vapour pressure (RVP)

Euro 2, 3 and 4 Option 1 Option 2
1993: 8 classes specified (Euro 2)
2001 60 kPa min (Euro 3)
2005: 55 kPa min (Euro 4)
All Grades)
1 Jan 2002: 67kPa)
(Default standard only where States/Territories do not regulate.)
No standard proposed.

Petrol volatility is an indication of how readily a fuel evaporates. It is, therefore, directly affected by regional temperatures and climates and is essentially an urban airshed problem. There is general agreement by all stakeholders that RVP standards should be set by the States and Territories.

Under both options, the Commonwealth considered introducing a national default standard which would apply in those jurisdictions that did not mandate an RVP standard. However it was recognised that setting a single national default limit would be problematic as the summer period varies regionally and there would need to be a series of regional default standards.

As States and Territories are effectively managing this issue already (or will be in the near future), Option 2 proposes that the Commonwealth not manage RVP levels and that they continue to be managed by State and Territory legislation.

Distillation (FBP)

Euro 2, 3 and 4 Option 1 Option 2
1993: 215°C max (Euro 2):
2000: 210°0C max (Euro 3)
2005 No E4 standard set
1 Jan 2005: 2100C (max) As for Option 1

The standard for the distillation final boiling point (FBP) proposed under both options ie 210° C (max) does not impact significantly on any stakeholders and was, therefore, not an issue of concern during the consultation period.

The proposed standard provides for harmonisation with Euro 3 in 2005 and will assist in controlling emissions during the vehicles 'cold' cycle, particularly hydrocarbons, formaldehyde and acetaldehyde. Resulting reductions in combustion chamber deposits will also reduce NOX emissions. Distillation limits will also complement RVP controls in managing petrol volatility.

Olefins

Euro 2, 3 and 4 Option 1 Option 2
1993: No standard for E2:
2000 (Euro 3): ULP:21% max
PULP: 18%
2005: Not yet specified
All grades:
1 Jan 2002 - 18% max by vol
1 Jan 2005 - 16% max by vol
All grades:
1 Jan 2004 - 18% pool average over 6 months with a cap of 20%.
1 Jan 2005 - 18% max by vol

The current average level of olefins in fuel produced by Australian refineries is 17%. Option 1 recommends a standard of 18% for olefin levels from 2002 and then proposes 16% in 2005. However, it was pointed out during the public consultation phase that the Euro 3 specification is 18% and there is no justification to mandate a standard below Euro 3. The Commonwealth's revised position released in September 2000, therefore, proposed that the Euro 3 specification of 18% be retained in 2005.

Emissions of olefins into the atmosphere contribute to ozone formation (photochemical smog) and toxic dienes. 1,3-butadiene, a known carcinogen is formed during the combustion of olefin compounds in petrol. The standard proposed under Option 2 harmonises olefin levels with Euro 3 and will significantly control the adverse impact on emissions as a result of olefin levels in petrol.

The proposed levels would also address vehicle operability problems resulting from a too high olefin content. Vehicle manufacturers have expressed concern about the oxidative and thermal instability of high olefin content which may lead to gum formation and deposits in the engine's intake system. Combustion chamber deposits form from the heavy hydrocarbon molecules found in the olefin portion of petrol which can also result in increased tailpipe emissions including carbon monoxide, hydrocarbons and oxides of nitrogen (NOx).

Impact on importers:

The proposal for harmonisation with the Euro 3 olefin standard caused considerable concern for importers supplying fuel from the Asia-Pacific region. Importers submitted that petrol with an 18% pool average over six months and a maximum cap of 20% cannot be sourced on a regular basis from the region and a high price premium would apply to any cargoes of fuel that meet the proposed specification. They have stated that while fuel sourced from China and Thailand is relatively low in aromatics, the refineries in these countries do not have the reforming capacity to lower olefin levels to that specified under either Option. They also state that it would not be economically viable for the fuel to be sourced from other regions such as Europe or the United States due to the high price premiums that apply.

In order to assess these claims, the Commonwealth commissioned an independent expert to undertake a technical and market information study of gasoline imports to Australia. The report from this study advised that gasoline is available for import into Australia from all the major refining centres in the world. Where gasoline is actually sourced from, however, depends on whether the import is economically feasible, which in turn depends on the difference in price offered for the product in different parts of the world and the freight costs to deliver the product to Australia.

At present, gasoline prices are lower in Asia-Pacific than in Europe and, as freight rates trebled during 2000 (due to the oil spill disaster in France at the beginning of 2000 which resulted in older vessels being withdrawn from service and a shortage of vessels for charter), it would not be economically viable to source 92 RON gasoline from Europe. The issue then, is for importers to find a continuous supply of fuel that meets the proposed specifications from the Asia-Pacific region at a price that is economically sustainable.

The major Australian companies also source some fuel from overseas, for example to cope with demand in the event that their refineries shut down. Advice from the refining industry is that refineries in Asia, owned by the four oil majors, can supply fuel which will meet the proposed Australian specifications. This fuel is sold on the open market and contracts for the supply of this fuel can be secured by any importers at a price premium of approximately 1c per litre. A premium of this level would not prevent an importer from competing successfully against domestic refiners who will also be unable to use MTBE, and will need to make investments to upgrade refineries or increase operational costs to meet the new fuel standards.

A revised proposal for olefins of 25% pool average over six months, with a cap of 28% from 2002 was presented to try and address importers concerns. This revised proposal still established the Euro 3 standard of 18% from January 2005. Importers, however, stated that this did not satisfy their requirement for 25% pool average with a cap of 35%.

The guiding principles for setting national fuel quality standards state that fuel standards must not impede competition, either between Australian refiners, or with imported refined product. However, the potential environmental impact of the standard proposed by importers is unacceptable. It would diminish the environmental gains arising from the standards and raise the risk of engine damage to new vehicles due to excessive gum formation. The impact of the standards on local refiners, which will result in domestic refineries having to make substantial investment to produce cleaner fuels, would be totally unbalanced with the impact on importers as their proposal would maintain the status quo for imported fuel.

A pool average and cap approach is proposed under Option 2 for introduction from 2004 to provide flexibility leading up to harmonisation with Euro 3 in 2005. With the proposed limitations imposed by the standards on the use of octane enhancers such as benzene and MTBE it will be more difficult for refiners to meet the higher octane requirements. The more flexible approach adopted under Option 2 is proposed to assist refineries in meeting the standards for aromatics and olefins and to provide independent importers with additional time to finalise current contracts and renegotiate for the supply of fuel to meet the standards.

The impact of the additional cost to importers to source fuel to meet the specifications is balanced by the significant investment required by local refineries to meet the tighter specifications for other parameters. Advice from the independent expert commissioned to review the impacts of the proposed standards on importers indicated that Asian refineries are moving to introduce hydrotreating equipment that will lower the olefin content in petrol by 2005 and indications are that fuel from the region will be readily available which meets the Euro 3 specification of 18% (max) at that time.

Aromatics

Euro 2, 3 and 4 Option 1 Option 2
1993: No standard for E2:
2000: 42% max (Euro 3)
2005: 35% max (Euro 4)
All grades:
1 Jan 2002: 45% max by vol
1 Jan 2005: 42% max by vol
1 Jan 2008/10: 38% max by vol.
All grades:
1 Jan 2002: 45% pool average over 6 months with a cap of 48% 1 Jan 2005: 42% pool average over 6 months with a cap of 45%

The flat maximum of 45% proposed under Option 1 would have an adverse impact on the refining industry. Refiners argued that while being required to lower benzene and aromatic levels they would still be required to achieve the higher octane requirements which becomes even more difficult with the banning of MTBE. It was noted that in Europe refiners have the option of using MTBE to meet Euro 3 requirements.

Under Option 2 a pool average and cap approach is proposed for the standards in 2002 and 2005 in recognition of the flexibility required to assist refiners in meeting the higher octane demand.

Most of the oil companies have indicated that the proposed levels under Option 2 are achievable. However, Mobil submitted that there would be significant costs associated with the required cap of 48% in 2002 and 45% in 2005. Noting the strong relationship between the octane of petrol and its aromatics content, it advised that it would not be able to make high octane petrol at all from one refinery if the cap is reduced below 48% in 2005. The other refinery would require an isomerisation unit, which is expensive, and due to its energy consumption would result in higher carbon dioxide (CO2) emissions and more crude would need to be imported. It argued that by maintaining the pool aromatics content, the fleet benzene exhaust emissions are not changed whether the maximum cap is 45 or 48%.

On the other hand, the Australian Automobile Association (AAA) submitted that the revised Commonwealth position (Option 2) of 45% pool average and 48% capped for 1 January 2002 appears high, given that the original position was 45% maximum by volume. Western Australian standards require 42% and it is reported that the fuel companies had little problem achieving this requirement (albeit recognising the local refinery capability and the refinery exchange system ie cross purchasing of fuel between companies). In addition, the AAA noted that MTBE was not used to achieve this level.

The proposed standards provide a compromise between the need for reducing the toxic effects of these fuel components, particularly benzene, and the capacity of the refining industry to lower aromatic content and still achieve required octane levels. Aromatic content also has a direct effect on tailpipe emissions of CO2. Testing data presented in the European Programme on Emissions, Fuels and Engine Technologies (EPEFE) report 1995 showed that a reduction of aromatics from 50 to 20% decreased CO2 emissions by 5%.

Benzene

Euro 2, 3 and 4 Option 1 Option 2
1993: 5% max (Euro 2)
2000: 1% max (Euro 3)
All grades
1 Jan 2002: 3% max by vol
1 Jan 2005: 2% max by vol
All grades
1 Jan 2006: 1% max by vol

Under Option 1, the Commonwealth proposal caused considerable concern for stakeholders in general. Benzene levels in petrol have been identified as a particular health issue as benzene is a known carcinogen. During consultation with stakeholders on the proposals under Option 1, there was strong support for the early introduction of a 1% maximum standard for benzene. However, the refining industry argued that Australia does not have a benzene problem and that there was no justification for the earlier introduction of 1%.

Western Australia, which has already introduced a 1% standard for benzene, expressed particular concern about the potential for a less stringent Commonwealth standard to override its standard resulting in a worse environmental outcome for that jurisdiction. Air quality monitoring results in Perth indicate that benzene levels could become a problem in the future if not controlled.

Option 2 proposes not to set a standard in 2002 harmonising benzene levels with the Euro 2 specifications (5%) as the industry average is already substantially lower (2.58% in ULP and 3.29% in PULP). It is considered that a better environmental outcome will be achieved by having benzene levels managed in this interim period through State and Territory legislation and negotiation with suppliers of 'best endeavours' targets.

Refinery investment to lower benzene levels is the largest capital expenditure for the industry after the investment to reduce sulfur. There is concern that at least four of the major refineries will have significant difficulty in meeting the Euro 3 standard in 2005, and that the introduction of the standard should be deferred for one or more years. One oil company submitted that an 'early' reduction to 1% would have a significant economic impact on its refineries by bringing forward the need to invest. It argues that benzene is not currently an air quality problem in urban areas in Australia. and capital city emissions of benzene from vehicles are projected to decline by 25 to 45 per cent in the period to 2010 with refinery 'best endeavours' targets and new emissions control technology.

Modelling under the Fuel Quality Review showed that mandatory reductions in benzene levels to Euro 3 standard would result in significantly greater reductions. The Review concluded that the most effective means of controlling both exhaust and evaporative emissions of benzene is through the management of benzene levels in fuel.

In its submission on the Commonwealth's initial proposal for fuel standards under Option 1, the Motor Vehicle Environment Committee (MVEC) expressed concern that a 2% benzene standard in 2005 would result in an Australian standard that is twice the international standard. MVEC's view is that the standards should send a clear signal to the refining industry that 1% benzene will be the target for 2005.

To delay investment would be inconsistent with the objectives of the Downstream Petroleum Products Action Agenda which identified investment as an essential step in ensuring that the refining industry in Australia remains viable and internationally competitive. If the required investment is not made, Australian refineries are liable to fall behind the large scale, low cost refineries in Asia. This may result in a lack of incentive to invest here, and ultimately lead to a significant reduction in local refining capacity.

Informal discussions with officials in State environment agencies have indicated strong opposition to any delay in introducing a 1% benzene standard. There would also be strong public criticism from non-government environmental organisations who are particularly concerned about this issue.

The NSW Government's 2000 State of the Environment Report has found benzene levels from petrol in Sydney's CBD are almost double international health goals. While NSW does not have a standard for benzene, the European Commission has set a goal of 1.5 parts per billion (ppb) of benzene in the air. Levels recorded in Sydney's CBD, according to the SOE report, were as high as 2.8 ppb and averaged a level of 2.5 ppb. The World Health Organisation advises that there is no safe threshold for benzene in ambient air.

As there is evidence that benzene levels in the atmosphere are rising in areas of high traffic density, it is important that stringent standards for the benzene content of fuel are introduced as soon as possible. The proposed standard under Option 2 will assist in managing emissions of this carcinogenic component of petrol and reduce the adverse impacts on health and the environment. The proposed approach will also not restrain the States in addressing benzene levels in local airsheds.

It was initially considered that the environmental and health benefits of introducing a 1% standard in 2005 outweigh the cost to industry in lowering the level of benzene in petrol. After further consultation and consideration of the impacts on the refining industry in light of the substantial cost to lower benzene levels, it is proposed to delay the introduction of the standard until 1 January 2006.

Lead

Euro 2, 3 and 4 Option 1 Option 2
1993: 0.013 g/L max (E2)
2000: 0.005 g/L max (E3)
2005: 0 g/L max (E4))
All grades
1 Jan 2002: 0.013g/L (max)
1 Jan 2005: 0g/L
All grades
1 Jan 2002: 0.005g/L (max)

The standard proposed under Option 1 for 2002 ie 0.013g/L (max) is equivalent to 13mg which is well above the current Australian average of 1.4mg. The standard under Option 2, therefore, has been tightened to better reflect refinery levels already achieved and is consistent with Euro 3.

The refining industry expressed concern that the proposed standard for 2005 ie 0g/L would not accommodate unavoidable lead residue in tanks and would be very difficult to comply with. Option 2 therefore proposes a specification of 0.005g/L to accommodate any lead residue.

The proposals for lead levels under both options were not contentious and the impacts are minimal. Consumers will pay the same price for lead replacement petrol as they would have for leaded petrol.

There are a variety of options available to the owners of pre-1986 cars once leaded petrol is phased out. These options depend on the engine type. Those vehicles with hardened exhaust valve seats and low compression engines can use regular unleaded petrol. However, the engines of those vehicles with high compression engines and soft exhaust valve seats would need to be rebuilt using hardened valves and valve seat inserts to allow them to use the cheaper regular unleaded petrol instead of lead replacement petrol. This option is likely to be cost effective only for those vehicles, such as historical cars, that are kept for a long period of time.

Oxygen content and Ethanol

Euro 2, 3 and 4 Option 1 Option 2
1993: No E2 standard
2000: 2.7% m/m max (E3)
All grades
1 Jan 2002: 2.7% (max) by mass
All grades
1 Jan 2002: 2.7% (max) by mass (no ethanol)

The proposed standard under Option 1 represents harmonisation with Euro 3 in 2002, however, it caused considerable concern for the ethanol industry. A maximum of 2.7% by mass would exclude 10% ethanol blend petrols already on the market. Option 1 would, therefore, not be consistent with Commonwealth Government policy to meet Greenhouse gas emission targets which rely on the use of ethanol. The increased use of biofuels like ethanol may help reduce future transport related emissions.

The Commonwealth's September 2000 revised position provided for an exemption from the standard for ethanol blends of up to 10%. Any such blends would still be required, however, to meet the RVP standards set by State and Territory legislation.

This proposal caused considerable concern for the Biofuels Association of Australia in that the standard limits the ethanol content to only 10%.

The FCAI has submitted that up to 2.7% oxygen content can be tolerated as long as the fuel volatility index is not affected, there is no use of methanol and as long as customers are advised that the fuel contains oxygenates, as fuel consumption may increase as a result of the fuel diluent effect of oxygenates.

In light of the limited information on the impacts of ethanol levels in petrol higher than 10%, it is proposed to delay setting an ethanol standard pending further studies (expected to take 12 months) into the impact of ethanol on engine operability, vehicle componentry, and exhaust and evaporative emissions.

Phosphorus

Euro 2, 3 and 4 Option 1 Option 2
No Euro standard set. No standard proposed ULP and PULP
1 Jan 2002: 0.0013g/L (max)

Option 1 does not propose a standard for phosphorus levels. However, concern has been expressed that, as phosphorus affects catalysts and engine performance, levels should be controlled. As there is no Euro standard for phosphorus, the proposed standard under Option 2 provides for unavoidable trace levels only and is consistent with the current Australian Standard for Petrol (AS 1876).

The standard would not apply to Lead Replacement Petrol to accommodate anti valve seat recession additives (AVSRs) which contain phosphorus.

The proposed standard under Option 2 is not controversial. As the impacts are minimal there was no opposition to the setting of a phosphorous standard.

6.2.2 Diesel

Sulfur

Euro 2, 3 and 4 Option 1 Option 2
1993: 500 ppm (Euro 2)
2000: 350 ppm (Euro 3)
2005: 50 ppm (Euro 4)
1 Jan 2002: 500 ppm
1 Jan 2006: 50 ppm
1 Jan 2008: 30 ppm
31 Dec 2002: 500 ppm
1 Jan 2006: 50 ppm
1 Jan 2008: To be revisited in 2002

The Measures for a Better Environment (MBE) initiative stated that the diesel sulfur standard would be set at 500 ppm by the end of 2002. It also noted that there would be negotiation with the oil majors for the early voluntary introduction of 500 ppm sulfur diesel in urban areas in 2000. In addition, MBE stated that Euro 2 vehicle emission standards (which require sulfur diesel levels at or below 500 ppm) for all new light duty diesel vehicles, and Euro 3 vehicle emission standards (which require sulfur diesel levels at or below 350 ppm) for new medium and heavy diesel vehicles, would be introduced in 2002. In 1999 new Australian Design Rules (ADRs) were gazetted to give effect to these emission standards from 1 January 2002.

2002: The preliminary Commonwealth position under Option 1 proposed that the 500 ppm diesel sulfur standard should take effect from 1 January 2002 to ensure that fuel of the appropriate quality was available from the date the ADRs took effect. In response to this proposal, three of the four domestic refiners advised that their planning for the introduction of 500 ppm sulfur diesel has been undertaken on the basis of the MBE timetable, and that they would have significant difficulties in meeting the 'advanced' timetable. They have submitted that the MBE timetable should be retained.

It is difficult to estimate the number of new diesel vehicles, fitted with components that are sensitive to sulfur, that will enter the fleet between January and December 2002. While a significant proportion of these will operate in jurisdictions with 500 ppm sulfur limited already in place (WA and Qld), there will also be significant numbers operating in other jurisdictions without a sulfur standard eg NSW and Victoria. The use of higher sulfur fuels in jurisdictions that do not have a standard in place may reduce the effectiveness of emission controls from January 2002 if the Commonwealth standard for 500 ppm is not introduced until December 2002.

Technical advice on the impact of higher sulfur fuels on oxidation catalysts has indicated that, while sulfur in petrol reduces the efficiency of the 3-way catalyst, this is not the case in oxidation catalysts for diesel vehicles. The lean operation of a diesel engine provides an exhaust gas with much greater oxygen content compared to a petrol engine and diesel engine exhaust sulfur in the diesel fuel almost entirely oxidises to sulfur dioxide. It is also claimed that catalyst efficiency is restored when the sulfur is reduced on the implementation of Euro 3 fuel. However, there is insufficient evidence to indicate whether catalysts would be completely or only partially restored. The FCAI argue that under normal driving conditions, operating temperatures would not be high enough to completely remove sulfur compounds from the catalyst surface.

In light of the difficulty refiners are expected to experience if the requirements to lower sulfur are mandated in January 2002, Option 2 proposes to give refineries until the end of 2002 to meet the standard. Notwithstanding the change in timing for the sulfur standard, the 'first stage' standards for other parameters are proposed to take effect in January 2002.

Proposal by Mobil for an alternative standard:

The guiding principles for the fuel standards development process note that consideration will be given to setting standards that provide, as far as possible, flexibility in terms of compliance.

Mobil has proposed the use of a fuel additive called Cleanerburn with 1300 ppm sulfur diesel as an alternative to meeting the 500 ppm sulfur standard. Mobil has advised that it is planning for an early move to 50 ppm sulfur and any investment to produce 500 ppm would be 'stranded' once the standard for 50 ppm comes into effect in 2006. Mobil claims that Cleanerburn contains a combustion improver that provides immediate and sustained reductions in diesel particle emissions equivalent to that achieved by reducing fuel sulfur to below 500 ppm.

The proposal under Option 2 to implement the MBE timetable and introduce the 500 ppm standard in December 2002 will not address Mobil's concern about 'stranded' investment. Mobil advised that, as it has been concentrating all its resources on development of the Cleanerburn proposal, it is now not in a position to be able to meet the December 2002 timetable.

To assess Mobil's claims and the impacts of an alternative standard using Cleanerburn and 1300 ppm sulfur diesel, the Commonwealth developed an assessment protocol which was provided to Mobil on 4 January 2001. If approved, the additive will also be available to the other oil companies if they wish to adopt the alternative standard. Once the assessment under the protocol has been completed, the impacts of the alternative standard will be covered in a separate Regulatory Impact Statement which will accompany any application for an approval of the alternative standard.

2006: Discussions with the refining industry indicated that investment to move to 350 ppm sulfur (Euro 3) would be redundant once 50 ppm was mandated. The preferred approach for refineries would be to invest to move directly to 50 ppm in 2006. Option 2, therefore, recommends mandating the Euro 4 diesel standard ie 50 ppm, after 500 ppm without the interim step of harmonising with Euro 3.

Cetane Index

Euro 2, 3 and 4 Option 1 Option 2
1993: 46 (min) (Euro 2)
2000: 46 (min) (Euro 3)
2005: 52 (min) (Euro 4)*
1 Jan 2002: 47 (min) index
1 Jan 2006: 50 (min) index
1 Jan 2002: 46 (min) index

Option 1 proposed a standard for both Cetane Index and Cetane Number . Stakeholder feedback indicated that Cetane Number cannot be measured as it requires an expensive test engine, none of which are available in Australia. Option 2, therefore, proposes a standard for Cetane Index only which is measured using a formula and derived from other fuel properties such as density and distillation. The simplicity of determining the Cetane Index has seen it dominate specifications and be routinely used for quality control. It has been so successful that there are now very few Cetane Number analysers available throughout the world generally.

The FCAI has expressed concern that no Euro 4 standard has been indicated for 2006/7. It has, however, been pointed out that a number of the Euro 4 standards have not yet been set and it would be premature to indicate any levels for 2006/7 where the Euro 4 level is not yet known.

The proposed standard for Cetane Index under Option 2 harmonises with Euro 3 and feedback from the refining industry indicates that the proposed level will not impact adversely on the industry's capacity to meet the standard.

The proposed standard under Option 2 will assist in the management of hydrocarbon emissions and emissions of nitrogen oxides as well as benzene, 1.3 butadiene, formaldehyde and acetaldehyde. The standard will also ensure the efficient start-up of engines and avoid engine knock and harmful engine deposits.

Density

Euro 2, 3 and 4 Option 1 Option 2
1993: 820-860 kg/m3 (E2)
2000: 845 kg/m3 max (E3)
1 Jan 2002: 820 to 850 kg/m3
1 Jan 2006: 820 to 845 kg/m3
1 Jan 2002: 820 to 860 kg/m3
1 Jan 2006: 820 to 850 kg/m3

The upper limit proposed under Option 1 for the 2002 standard has been increased under Option 2 to harmonise with Euro 2. Consultation with the refining industry indicated that there would be no real environmental gains from introducing the tighter standard specified under Option 1, however, it would impose a significant cost on refiners. To significantly lower density levels would require expensive hydrogenation units at an extra cost of about 35 to 40 million dollars with a substantial increase in operating costs at the refinery. The hydrogen in the fuel would also increase greenhouse gas emissions.

The original proposal under Option 1 to harmonise with the Euro 3 standard in 2005 has been modified in Option 2. Adoption of the Euro 3 specification will limit the range of crudes suitable for use in Australian refineries in order to produce their unique product demand spread. Unlike Europe Australia does not have a large fuel oil market, however, it has an ongoing strong demand growth for automotive diesel fuel.

The FCAI expressed concern that the upper limit on this parameter is significantly higher than the Euro 3 specification of 845 kg/m3 which could produce increased particulate emissions. It is, however, considered that the Australian situation needs to be taken into account in this instance. Relaxing the upper limit of the Euro 3 specification will allow refiners to produce a greater amount of diesel and less fuel oil from a wider range of crudes. The alternative would be to refine the excess fuel oil with a catalytic cracker. However, the product from this process is generally of a lower quality and would therefore make the other diesel specifications difficult to meet.

The proposed standards under both options would assist in controlling emissions of hydrocarbons and butadiene as well as NOx and benzene emissions.

Distillation T95

Euro 2, 3 and 4 Option 1 Option 2
1993: 370 (max) (Euro 2)
2000: 360 (max) (Euro 3)
2005: 340 (max) (Euro 4)*
1 Jan 2002: 360°C (max)
1 Jan 2006: 350°C (max)
1 Jan 2002: 370°C (max)
1 Jan 2006: 360°C (max)

In assessing the impacts of the standard proposed under Option 1, it was once again considered that the environmental gains by introducing the tighter standard did not warrant the significant cost impost on the refining industry. The most cost-effective route for refineries in lowering distillation are linked to the processes required to manage sulfur, cetane and density levels and these will not be in place before 2006.

Under Option 1, the original proposal for 2006 was intended to harmonise with Euro 3, however, the figure provided (ie 350°C max) was incorrect. Option 2 specifies the correct Euro 3 value for T95 distillation of 360°C (max).

The proposed standards under Option 2 harmonises with Euro 2 in 2002 and Euro 3 in 2005. The standards will assist in managing the combustion chamber deposits and increased tailpipe emissions of soot, smoke and particulate matter that result from the heavier fractions of the fuel and do not impose a cost burden on the refining industry.

Concern was expressed by the FCAI that the proposal for the Euro 2 standard in 2002 ie 370°C would result in 'increased coking and particulate emissions'. The FCAI did not, however, provide any documentation in its submission to substantiate this claim.

Polyaromatic hydrocarbons (PAHs)

Euro 2, 3 and 4 Option 1 Option 2
1993: No Euro 2 standard
2000: 11% m/m max (E3)
2005: 4% m/m max (E4)*
1 Jan 2006: 11% m/m (max) As for Option 1

There was general agreement among stakeholders about the need for the standard proposed under both options for PAHs ie 11% m/m (max). The proposed standard does not impact adversely on refinery costs to deliver and provides harmonisation with Euro 3.

The standard will assist in managing many PAHs that a known human carcinogens. Research suggests that lowering diesel PAH content reduces emissions of NOx and particles generally, and in light duty vehicles, formaldehyde and acetaldehyde emissions.

The indicative Euro 4 level for modelling under the Fuel Quality Review was 4%. As data on PAH levels in Australian diesel is extremely limited, there was no strong justification for introducing a more stringent standard than Euro 3 in 2005. The Commonwealth is considering commissioning a specific research project to assist in determining future levels that are appropriate for Australia. The standard for 2005 could then be revised if required in light of any significant findings and once information is available on what the Euro 4 level will actually be.

In the period leading up to 2005, the proposed Euro 3 standard of 11% will assist in managing the adverse impacts of PAH levels in diesel fuel. Once again, the FCAI expressed concern that a standard has not been specified for 2006 to harmonise with Euro 4. This issue will be considered further to determine what the standard should be in 2005/6 once the Euro 4 level is known.

Ash and suspended solids

Euro 2, 3 and 4 Option 1 Option 2
1993: 100 ppm max (E2)
2000: 100 ppm max (E3)
1 Jan 2002: 100 ppm (max) No change

The proposal under both options for the ash content of diesel and diesel extender harmonises with Euro 2 and does not cause any adverse impact on the refining industry and stakeholders generally. The proposed standard will assist in controlling levels of ash forming material that contribute to fuel injector and fuel pump wear and combustion chamber deposits that influence emissions performance.

The Measures for a Better Environment recycled waste oil initiative provides for the use of this oil as diesel extender subject to compliance with relevant Commonwealth environmental standards. The use of recycled waste oil as diesel extender may increase the ash content of the fuel as a result of residual oil soluble organo-metallic compounds added to the original oil products. The proposal for a fuel standard, therefore, recommends that the ash content of diesel and diesel extender be mandated on a national basis.

The AIP agrees with the proposed specification, however, is of the view that diesel extender should only ever be sold in a blend with diesel, with the overall blend meeting the diesel specification for ash and all other components. This is to ensure that any consumer purchasing diesel can be assured that the product is diesel in every respect, even if it is a blend of diesel and extender. The AIP believes it is, therefore, irrelevant and unnecessary to make specific recommendations for diesel extenders.

Viscosity

Euro 2, 3 and 4 Option 1 Option 2
No Euro standard 1 Jan 2002: 2.0 to 5.0 cSt @ 40°C 1 Jan 2002: 2.0 to 4.5 cSt @ 40°C

Further consideration of the original proposal under Option 1 indicated that the standard proposed for viscosity could be tighter in light of levels already being achieved by the refining industry. The standard proposed under Option 2 harmonises with the Euro 2/3 standard.

The proposed standard under Option 2 will assist in ensuring proper operation of the fuel injection process. If viscosity is not controlled, combustion is impaired and power output and fuel economy are decreased which may affect emissions performance.